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Nest accused of ‘smoke and mirrors’ over 0.5% charge claim

Aviva has accused Nest of using “smoke and mirrors” when claiming its charges work out at 0.5 per cent within 10 years.  

Nest operates a dual charging structure, with members paying a 1.8 per cent contribution fee on new investments alongside a 0.3 per cent AMC.

Nest quotes the fact that its charges work out at around 0.5 per cent within 10 years. 

Nest director of communications and engagement Graham Vidler says: “The charges individual members pay in Nest and the impact on their pot does depend on a number of variables – for example, how long they save for, how much they save, investment returns. 

“A saver who contributes consistently can expect their charge to be around 0.5 per cent within 10 years.”

Aviva head of policy for pensions and investments John Lawson highlights that this figure is the average a saver will pay in the 10th year, rather than the average across the first 10 years, and creates an unfair comparison with private sector schemes. 

According to Aviva analysis, it will actually take 18 years before a Nest member who contributes £100 a month will see their annual charge drop below 0.5 per cent when calculated on a reduction in yield basis. Aviva estimates the Nest RIY over the first 10 years as 0.67 per cent. 

Lawson says: “Reduction in yield is common currency in the industry for converting a multi-charge like Nest’s into a single charge. Nest is trying to use smoke and mirrors to reduce the perceived price that members have to pay.

“It is fair to say their charge works out at 0.5 per cent after 20 year but not after 10 years.”

Vidler says: “We are very clear on how our charge structure works and have publicly available documents setting out the impact of the structure for different individuals. We also do use RIYs in material focused on advisers and employers.”

It is not the first time Nest has faced criticism from the industry this year.

In July, B&CE – the firm behind The People’s Pension – hit out at Nest for spending a “staggering” £68m in the year to 31 March 2013.

Nest was also the victim of a £1.4m fraud during the same month.


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. No surprises here. Many of us have already pointed out that NEST is a high charge option and they are being disingenuous when the try to project 10 years hence. When they are haemorrhaging Tata will soon put up prices and as they are the only ball game in town (no one else wanted to tender for this rubbish) and the Government can do little about it.

    That NEST will be the default choice for Opt Outs will be a given. They will end up with myriad tiny pots that will be horrendously expensive to administer.

    Of course the price obsessed Regulator will (and has) also kept a blind eye. If a private provider offered these terms a thematic review would be upon them like a thundercloud.

    The roll out of AE to SMEs will be as welcome as a dose of pox. A recent CEBR report recently concluded that AE admin will cost British Businesses £15.4 BILLION initially and goodness knows how much on-going. So firms will be ecstatic. As far as the employee is concerned it seems to have escaped the devotees of this tax (because that’s what it is) that real wages dropped by 10% in the four years between December 2008 and December 2012 – so a further 3% or 4% being swiped out of their pay packets will go down like a bag of sick. Oh and guess what – it’s OK for AE to quote in percentages, but not for advisers. Another grand nonsense.

  2. goodness gracious 18th September 2013 at 2:41 pm

    The real problem is not that NEST charges are too high, after all, NEST is the default for all those who have paid a tiny amount in. Perhaps they work part time and some overtime put them from exempt to paying. Maybe they only were in work for a short time, who knows, but NEST still has to take their contribution, provide statements etc. and run the account. Will Aviva take these low contributing workers in its AE proposition?
    So this war of words is pointless. If someone who contributes £100 per month can obtain a better pension from Aviva rather than NEST for the same contribution then fine. Aviva, if there are enough employees with high enough average payments for them to take the business, then they may also help the employer with systems to reduce the administrative costs.
    But don’t forget that for every person directing their pension money away from NEST to the insurers, then NEST will have to spread their costs between more smaller pots and still have an average RIY higher than those who cherry picked the best earning and more stable employees.
    Decisions on who gets the money from Auto Enrolment seems to be based on service and acceptance, rather than cost.
    So stop bickering John and Graham, cost for the employee barely comes into it!

  3. I love your comments Harry, you should get a job as a journalist!

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